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What’s making CEOs so angry about the dividend tax hike?

The majority of companies surveyed in the Merchantec CEO Confidence index say the new regime could affect investment negatively

31 March 2017 - 10:40
Alistair Anderson

Picture: ISTOCK

The increase in taxes paid on dividends could be to the detriment of economic growth and job creation, say various companies across SA.

A quarterly report by the Merchantec CEO Confidence index published on Thursday said that 91.5% of CEOs interviewed expressed concern over the rise in the dividend withholding tax rate.

Finance Minister Pravin Gordhan announced in the budget in February that the rate would rise from 15% to 20%.

Merchantec said there was concern that the increase might affect investment negatively, as companies would take their capital offshore. "It has been suggested that the broadening of tax sectors and bases needed to be investigated," it said.

The survey indicated that some CEOs believed tax hikes were necessary. But increasing the tax on dividends, which tended to be paid by institutions and the wealthy, was "diametrically opposed to growth and job creation".

The Merchantec confidence index surveys 1,000 CEOs in the resources, consumer goods and services, financial, industrial and technology sectors about economic and business trends.

It comprises five components, collates views from CEOs of large South African companies and claims to provide a leading indicator of business leaders’ perception of market conditions and the health of the economy.

Merchantec says research shows that CEOs believe reassessing value-added tax (VAT) could lead to building a broader tax base.

"VAT can be seen as a fair tax because it does not target one particular group of taxpayers and can be regulated quite efficiently," the advisory company said.

"The lack of trust in political decision-making is still a dominant concern among CEOs as we move through 2017."

The Merchantec CEO Confidence index recorded a 7.2% improvement in CEO confidence between the fourth quarter of 2016 and the first quarter of 2017 to a score of 51.4.

A score below 50 would indicate that CEOs were mostly negative about the state of the country, while a score above 50 indicates they are mostly positive.

The 7.2% upturn was supported by an increase in confidence across most of the six sectors measured, most notably basic resources and industrials.

"CEOs across all six industry sectors believe current economic conditions in SA compared with six months ago are recovering. Overall, industry growth outlook increased 15.4%, followed by an increase in confidence in the current economic conditions and the ability to secure debt or equity by 9.7% and 7.7% respectively," the advisory company said.

CEOs were expecting conservative levels of growth in their companies and a slight increase in planned investment.

They have also been concerned about unclear political moves by SA’s leaders and economic weakness.

The rand weakened sharply following President Jacob Zuma’s decision to recall Finance Minister Pravin Gordhan and his deputy, Mcebisi Jonas, from their international investor roadshow on Monday. The currency has since recovered some of its losses.

However, the index may turn positive further in the second quarter if the economy improves. On Thursday, the Reserve Bank said it expected SA’s GDP to grow 1.2% in 2017 and 1.7% in 2018, both forecasts being higher than those made in January.